Seller Disclosure Obligations and Liability

Recently, we have been encountering an increased number of claims from buyers after a closing that the seller failed to disclose a latent defect in the property.  As a result of this increase, we also noticed that, while most real estate professionals have a general understanding of a seller’s duty to disclose, a few misconceptions exist as to what is required under Florida law.

As you probably know, the landmark case in this area of law is the Florida Supreme Court case Johnson v. Davis.  In Johnson, the Court made it clear that a seller must disclose any known latent defects which materially affect the value of the property, and which are not readily observable to the buyer, before signing any contract.  Below are some important points to be aware of regarding this duty to disclose:

1.      The standard for liability is whether the seller had actual knowledge of the defect.  This is the area where we encounter the most confusion, because merely discovering a major defect that was not disclosed is not enough to prevail on a failure to disclose claim.  The buyer must prove that the seller knew the defect existed.  It is not enough to prove that the seller should have known of the defect, or that any reasonable person would have known of the defect.  This means that the buyer must find evidence of the seller’s knowledge, such as recent patching over an area, or a neighbor who says plumbers were constantly called to the property over drainage issues.

2.      A seller cannot avoid liability for failing to disclose a latent defect by executing an “As Is” contract or including a broad “as is” clause in a contract.

3.      The duty to disclose only applies to residential property.  There is no duty to disclose in commercial real estate transactions; however, sellers of commercial real estate can still be held liable for fraud if the seller actively conceals a defect or intentionally misrepresents facts to the buyer.

4.      If a defect is discovered prior to closing, and the seller hires a contractor to correct the problem, the buyer should have the repair work inspected by a third party.  Moreover, it may be prudent for the buyer to get the seller to certify in writing that the repairs were properly completed and the defect fully remediated.  This is because the seller is not liable for improperly completed work unless s/he actually knew the repairs were incomplete or improper.

5.      While many sellers complete and provide potential purchasers with the form “Seller’s Real Property Disclosure Statement,” sellers are not required to do so under Florida law.  Buyers are encouraged to request a seller’s disclosure form from the seller before signing any contract.

6.   The duty of disclosure extends to the seller’s real estate broker.  This means that a real estate broker can be sued by a buyer for failure to disclose.  Therefore, any broker representing a seller should fully advise the seller to disclose all latent defects and cooperate in disclosing any defects to potential purchasers.  The listing agent may desire to take the additional precautionary measure of having the seller sign a document certifying that s/he has disclosed all defects to the listing agent.

It is often challenging to bring a successful failure to disclose claim because of the difficulty in finding evidence that the seller actually knew of the defect.  For this reason, we strongly encourage any buyer to conduct comprehensive, thorough and professional inspections of the property before purchase in order to avoid any potential claim after closing. As always, should you have any questions regarding the foregoing we urge you to consult with your local real estate attorney.

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Michelle Champion, Esq.  mchampion@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

www.berlinpatten.com 

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